distribution strategy of hewlett

8/4/2019 Distribution Strategy of Hewlett

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SALES AND DISTRIBUTION STRATEGY OF HEWLETT - PACKARD

Hewlett-Packard Company, commonly referred to as HP, is an American multinationalinformation technology corporation headquartered in Palo Alto, California, USA. Thecompany was founded in a one-car garage in Palo Alto by Bill Hewlett and Dave Packard,

and is now one of the world's largest information technology companies, operating in nearlyevery country. HP specializes in developing and manufacturing computing, data storage, andnetworking hardware, designing software and delivering services. Major product linesinclude personal computing devices, enterprise servers, related storage devices, as well as adiverse range of printers and other imaging products. HP markets its products to households,small- to medium-sized businesses and enterprises directly as well as via online distribution,consumer-electronics and office-supply retailers, software partners and major technologyvendors.HP's posted net revenue in 2009 was $115 billion, with approximately $40 billion comingfrom services. In 2006, the intense competition between HP and IBM tipped in HP's favor,with HP posting revenue of US$91.7 billion, compared to $91.4 billion for IBM; the gapbetween the companies widened to $21 billion in 2009. In 2007, HP's revenue was $104billion, making HP the first IT company in history to report revenues exceeding $100 billion.In 2008 HP retained its global leadership position in inkjet, laser, large format and multi-function printers market, and its leadership position in the hardware industry. Also HPbecame globally in IT services as reported by IDC & Gartner.Major company changes include a spin-off of part of its business as Agilent Technologies in1999, its merger with Compaq in 2002, and the acquisition of EDS in 2008, which led tocombined revenues of $118.4 billion in 2008 and a Fortune 500 ranking of 9 in 2009. InNovember 2009, HP announced the acquisition of 3Com; with the deal closing on April 12,2010. On April 28, 2010, HP announced the buyout of Palm for $1.2 billion.[9] On

September 2, 2010 won its bidding war for 3PAR with a $33 a share offer ($2.07 billion)which Dell declined to match.On August 6, 2010 CEO Mark Hurd resigned.[11] Cathie Lesjak assumed the role of interimCEO, and on September 30, 2010, Lo Apotheker became HP's new permanent CEO and RayLane, Managing Partner at Kleiner Perkins Caufield & Byers, was elected to the position ofnon-executive Chairman. Both appointments were effective November 1, 2010

Distribution channels have become the least glamorous strategy in the B2B marketingportfolio. Who writes about building channels, nurturing partners and channel performance?

I feel grizzled just tackling this subject. Social media, search marketing and new media are

the topics with heat even in the B2B crowd (a small group compared to consumer marketers,I might add). Frankly, theres been nothing new or exciting to say about distribution strategyfor many years.

Many marketers in established companies dont give much thought to distribution strategy.Maybe its because they think of distribution as the movement of a physical product from oneplace to another.

Or maybe its because distribution is a strategy thats only discussed in the executive suite,and marketers often donthave a seat at that table. Maybe its just because its rare to findnew case studies and stories about innovative channel design and management.

A key marketing strategy


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But distribution strategy (one of the 4 Ps, BTW) is perhaps the most important w eapon inyour arsenal. Great distribution strategy and execution can dramatically boost your top line.A poorly-performing channel can do the opposite.

For many B2B service firms (including SaaS companies like us who dont physicallydistribute a product), channels are somewhat intangible and take creativity to apply. Forexample, you can create a private-label version of your service and offer it to large partners tooffer to their customers. Or you can create a packaged offering where you join forces withother companies to offer a larger suite of services.

Well write more about creating channels for service companies in our next post. Today Imfocusing on improving an existing channel using H-Ps PC division as an example.

H-P versus Dell

While H-P used to own the #1 spot in the PC market, Dell took over the top spot in 2003.Dells direct distribution model became the envy of all PC manufacturers and made them adarling on Wall Street (and a case study for all MBA students). Christopher Lawtons post forthe Wall Street Journal provides great detail about H-Ps fall and strategy to regain the topspot.

It started in 2005 when H-P CEO Mark Hurd hired Todd Bradley to run its PC business.Bradley quickly found out that H-P was concentrating resources where Dell was strong: indirect sales over the internet and phone.

More importantly, in focusing in head-to-head competition with Dell, H-P was neglecting itsretail stores. Bradley found a slew of problems:

Late and incomplete deliveriesStrained partner relationsNo marketing focus (the printer division handled PC marketing)H-Ps research also showed that 58% of PC buyers had no preference whether they bought aPC in a store or online.

Let the plum tree wither for the peach

So instead of fighting a losing battle online, Bradley shifted H-Ps focus to a battle it couldwin: in the retail distribution channel.

Bradley immediately began repairing relations with retailers, freshened designs to appeal toretail buyers, formed the PCs own marketing group, upped his retail outlet marketing budget,and designed new campaigns targeted to the retail buyers.

Some of his campaigns such as The Computer is Personal Again with rapper Jay-Z andfashion designer Vera Wang alarmed H-P employees, who felt Bradley was too focused onconsumer PCs, ignoring corporate business.

He shrugged off the criticism. I wasnt holding an election.


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The results? H-Ps retail outlet strategy vaulted it back to the undisputed world lead inpersonal computer sales.

When youre losing marketing share, shifting the battle to one you can win might work foryou. (Its one of the 36 Stratagems of ancient China: Let the plum tree wither in place of the

peach.)

Six ways to improve your channels performance

If you need to improve your channel performance like H-P, here are six things you can do toimprove your top line.

1. Make it a priority. Devote resources to channel managementpreferably at least onededicated manager whose sole responsibility is to manage those relationships and build themarketing programs to drive revenue through the channel.

2. Develop measurements and track performance. Know who your best sales performers areat each point in the channel. By tracking orders, volume and total revenue at each point, youcan identify and improve underperforming partners and keep your top performers happy.

3. Communicate! Build relationships at each step of your channel. If youre not talking withyour partners, how can you identify problems and solve them? And how will you knowwhether your programs are working and how to make them better?

4. Drive revenue through the channel. Take ownership of the marketing campaigns that willdrive revenue at all levels through the channel. Your partners have to focus on building theirown customer base, not marketing just your product (remember that youre not the onlysolution they offer).

5. Avoid pricing conflicts. Establish a pricing strategy and stick to it. If channel conflictarises because of price, attempt to resolve it ASAP.

6. Address conflicts swiftly. Since distrust and channel conflict is common, its important toaddress problems quickly to find a solution.

After writing this, its even clearer to me why theres no buzz about channels. Building andmanaging traditional channels isnt glamorous and requires a lot of elbow grease. But even

though channels have little sizzle in the marketing mix, theyre a big piece of the steak.

1) HP is a VERY BIG supplier to channel and 2) The company that Mark Hurd formerly led,NCR, utilized the channel to a far less extent than HP. So the natural concern is Hurd maysteer HP toward a greater percentage of direct business in their distribution model.

CHANNEL PROPAGANDA

It was interesting, especially at first, to watch various editorials attempt to "read the MarkHurd tea leaves." This started IMMEDIATELY AFTER his very first press conference,which ANNOUNCED his appointment as the new HP CEO. The better part of one issue of a

prominent channel magazine seemed dedicated to trying to decipher the impact on thechannel by interpreting his earliest words. Hurd basically said, "I don't know yet". His


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appointment had just been announced within the last hour, so that seemed to be a prettyreasonable statement! While certainly not universal, many a columnist and channelspokesperson interpreted this simple, honest statement to be a putdown of the channel's roleat HP, with dire consequences certain to follow if this held true. These wags even went on towarn him of how the channel will turn on HP. They pretty much threatened that he had better

live up to recent HP channel executives promises to make the channel even more prominentin HP's distribution model. It's pretty ironic considering many HP executives will tell you thatmost of their business already flows through channels, sometime hampering their ability togather good marketing data. To quote a high profile (and somewhat silly) primetime TVreporter, "I say give me a break!"

The whole thing was really jumping the gun, and frankly quite silly. As Hurd has had a bit oftime to study the massive company he is taking over, these same channel players seem to bepleased with his follow-on statements, and the direction they believe he will lead HP withrespect to the channel. I got quite a chuckle over a period of weeks reading the variousstories. As I stated above, it's ironic to me, since HP already pushes the great bulk of its $80B

business through the channel. While doing this, their business is certainly not optimized, andthe key competitor breathing down the company's throat is Dell. Dell's direct distributionmodel is clicking on all cylinders, moving down the line like a Japanese bullet train whileattempting to blow HP out of the water. And if HP doesn't make some fundamentalimprovements to its business model, it just might happen. You would think it might be wiseto examine whether utilizing direct distribution more heavily might be good for HP to study.

Of course, my channel colleagues reading this will want to burn me at the stake for espousingsuch blasphemy! Go directhow dare you say such a thing! That is the nature of channelconflictall parties want the business for THEMSELVES. Much smoke is always blown bythe various interested parties about what is right and fair, and commitments that were madeand so on, but let's face itit's basically self interest. They just want the business forthemselves.

So what's a company to do? Just sell direct, or just sell through VARs, or just sell throughretail? Unless you have strict exclusive territories throughout your distributions system,problems will still arise. You'll always have some kind of conflict (two direct reps or tworesellers fighting over who should have an account), but at least you would eliminate cross-channel conflict, which can be particularly complex and nasty.

Well, limiting yourself to a single channel focus certainly may make your life less

complicated, and less rife with conflict. But unfortunately, in most cases, you'll be leaving alot of money on the table. If you rule out natural channels that can sell your product, youwon't be maximizing your return on your heavy investments in IP, which should be one of thefundamental concerns of any business.

HAVE YOUR CAKE AND EAT IT TOO

So I say, sell through every channel that makes sense. If done poorly, it can, and almostcertainly will, be very messy. You'll be sorry you did it, and probably become a convert to asingle channel, or at least less complex, distribution model. But it doesn't have to be so. Yes,you CAN have your cake and eat it, too.

There are many potential channels for your products: direct, OEM, one-step through VARs,


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2-step through distributors/VARs, retailers, independent sales reps, strategic partner referrals,and more. In extreme cases, ALL of these potential channels may be appropriate ways todeliver your product to the market. The question I am often asked by clients is "How do youmake it all work without it blowing up in your face?" The way you can do this is to live bytwo very simple rules:

1) DON'T EVER SCREW A REAL BUSINESS PARTNER

It actually sounds pretty simple and easy. Yet humans can be greedy creatures, and just alittle greed in partnering can quickly ruin reputations for a long time. There's the greedy VARwho thinks he deserves a piece of every deal with any customer within a 100 mile radius ofhis officea customer he might have only sent a piece of mail, or cold-called a year before.But more seriously, it only takes one weak-willed sales manager at a manufacturer orsoftware developer, trying to make quota or maximize his income, to cause real havoc. If heattempts to cut a channel partner out of a deal that they drove, or had legitimate influenceonthis is a mortal sin. Your channel partners will be outraged, and they will spread the

word and not soon forget. Your reputation has been tainted, and that crucial trust that isnecessary to make any business relationship work is now gone. Everything becomes harder.Partners aren't willing to share information about what's going on in accountsmaybe evenwithholding names on potential new deals. A struggle for account control, rather thanteamwork, becomes the rule of the day. So if it is a REAL partner, one who is trying to drivebusiness to your mutual benefit, do whatever it takes to make it right. Give up short-termprofitability to maintain a long-term profitable relationship. Don't ever, ever screw a partnerin the name of short-term gain. It can ruin your channel business long term.

2) DO ALLOW BUYERS TO PURCHASE THE PRODUCT FROM WHOM THEY WANTTO BUY IT

If you are honest and fair with people, potential channel conflict shouldn't unnecessarily stopyou from maximizing revenue by using multiple methods of delivering your product to themarket. There is a range of customer profiles in the market. Some want to buy everythingthrough their trusted VAR/Integrator, who helps give them a third party evaluation of theproduct's virtues. Others want to deal directly only with the manufacturer or developer of thespecific product they are purchasing. A third category of buyers likes to buy as much aspossible through their favorite large manufacturerthis is a great reason to OEM yourproduct to the IBMs of the world. In each of these situations, the channel that is bestpositioned, via relationship or type of support, should and usually will get the deal. In each

situation, if your product isn't available in that channel, my may not get the deal. The lastcategory of buyer, however, is different. This is the bargain basement buyer, the one whocouldn't care less who he buys from, as long as he gets the lowest price. These are the peoplethat can wreak havoc on a multi-channel distribution system, if you aren't careful.

BEWARE THE BARGAIN BASEMENT BUYER

It's this price conscious buyer that will often bring cross-channel conflict to the forefront.Since they are seeking the lowest price, they end up shopping the purchase across manypotential sources for the product, creating great price competition among your channelpartners. This is where conflict is often born. There are many tactical mechanisms to limit

these situations (such as deal registration), which I won't delve into. The main thing to havethought out is where these customers should end up buying. There are two basic approaches:


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1) Tell your value-added channels that this price conscious buyer, who isn't looking for anyadded value, isn't going to buy from them. You might decide that this buyer is going to findthe lowest price at retail, or maybe direct if they buy in volume. In this case, it's important toset those expectations up front when you recruit channel partners. Let potential partners know

where they fit, and where they don't. They can walk away if they don't like it; otherwisethey've been warned. This is being fair and honest. Before potential partners invest in sellingyour products, they should have the real picture of what they're getting into.

2) Conversely, you can strive for street price equity between channels. This gets tougher todo the more channel types you have, and also the larger your channel is in general. But it canbe done. The main thing here is to avoid giving incremental channels discounts based uponvolume. If you do, incentives are created for a channel player to discount to achievevolumethereby lowering their costs, so they can win more business via aggressivediscounting. This leads to a continuous downward spiral in your street price, and tounhappiness and channel conflict to such a degree that will drive you to drink, or at least a

career change. It will get ugly. But if you limit your channels to those that truly are strategicfor your product, and which add real value, it can be managed. The key is to set discountschedules based upon value-add and associated costs, rather than revenue or unit volume.

In terms of fixed pricing, HP utilizes the promotional and bundling pricing strategies. Used asan incentive for consumers to buy more than one product, promotional pricing is used bymany computer companies. HP is currently offering several discounted, free, and bundledproducts and services to appeal to consumers by using both the bundling and promotionalprice strategies. One example of HP utilizing these strategies is the New HP Pavilion dvgzlaptop. Priced at $599.99, if you buy this laptop you receive other services as well as severaldiscounts which include: a free memory upgrade to 3GB memory as well as a 320GB harddrive, $100 rebate, free color customization (stated as a $25 value), $30 off Microsoft OfficeSmall Businesses 2007, $50 off on Blu-ray drive, and free shipping. The second product HPoffers is the HP Pavilion dv4t series, also priced at $599.99. If you buy this PC you will alsocan obtain several discounts and services for free, valued at $436, which includes: $150instant rebate, free double memory upgrade from 1GB to 3GB (stated at $100 value), freedouble hard drive upgrade from 160 GB to 320 GB (stated as a $90 value), 50% off High-Definition LED display (stated as a $30 value), $30 off Microsoft Office Small Businesses2007, and free shipping. Lastly, another product that can be categorized into both thebundling and promotional pricing strategies is the HP Touchsmart tx2z Series. Priced at$899.99, HP offers a $419 discount which includes: $200 instant savings, free double

memory upgrade from 2GB to 4GB (stated as a $100 value), free double hard drive upgradefrom 160BG to 320GB (which is stated as a $90 value), $30 off Microsoft Office SmallBusinesses 2007, and $40 off on 320GB Pocket Media Drive.

All of these products and services that cater to the promotional and bundling pricingstrategies appear on HPs homepage in flash reels, have customer reviews and ratings, and ifyou buy these products within a certain amount of time, you receive 90 days with nopayments. Furthermore, right above the flash reels of these HP products is a promotionalpricing strategy that offers free shipping for an order of ink, toner, and paper delivered thenext business day and all qualifying offers over $49.99.

HP also uses the segmenting pricing strategy to offer its customers a variety of options to payfor its services or technology. According to Business Wire, One of the options HP is giving


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its consumers is pay-per-use utility pricing which charges consumers for actual usage on amonthly basis. This technology works by measuring the percentage of utilization on eachCentral Processing Unit. The advantage for HP customers is that they will only pay forprocessing they are utilizing. They also have the option to use additional processors, thereforeprocessing is not limited.

HP was recently named one of the top 25 companies who do more to satisfy consumersaccording to Business Weeks third annual Customer Service Champs Survey. Furthermore,HPs net revenue has continued to increase in the last 4 years (from $79,905 million in 2004to $118,364 million in 2008). Its year-over-year net revenue percentage increase was 13% inthe fiscal year ending in 2008. In terms of assessing the effectiveness of HPs pricingstrategies, I would say that HP is highly successful because it has strong financials andconsumers seem to respond positively to its pricing strategies. Strong brand image andmarketing initiatives have helped to improve HP sales. In fact, by placing its pricingstrategies along with the products and services it wants to sell in the center of the HPhomepage, it is using marketing tactics and web design to draw the task-oriented consumers

to these special offers. Moreover, HP makes the customer reviews and ratings easilyaccessible to other consumers when navigating through the web site. This shows theconsumer that HP is a trustworthy company which truly cares about customer satisfaction andexperience with its products.

Besides adjusting its product line and pricing strategy to confront intensifying competition inthe ICT market, HP has also been making extensive changes to its distribution strategy in aneffort to reduce distribution costs and boost earnings. This report will examine HP'sdistribution strategy and analyze the opportunities and challenges facing HP, with the aim ofclarifying HP's overall performance in the global PC market

distribution strategy of hewlett

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